PROJECT MANAGEMENT WITH A CONTRACTOR

By
DUDLEY J. KINGSNORTHl

ABSTRACT '
This paper is a review of the phases of
The long term viability of a mining this relationship, dra\1~ng attention to the
company is dependent on the success of its means whereby the project can be completed
capital investments. Due to the specialised within budget and on time.
nature of the design, engineering and
construction of large projecLs the management
is often contracted to an outside
organisation. This paper is a review of t~e Contractors spend a great deal of time
phases of the relationship between Client and ilnd effort in the preparation and submissio:1
Contractor. A rationale is developed upon of proposal s to a client. To ensure that or,l y
which the selection of a Contractor can be fully interested and qualified contractors ar~
made. Subsequently, the key aspects of the c.sked to submit proposals, a short list shou:"
Client/Contractor relationship are reviewed be prepared upon the basis of responses to ar
with reference to completing the project on invitation to prequalify. This should reduc"
time within budget. The aspects discussed the number of prospective contractors to ,."
include Contractor management systems, manageable four or five (each of ~hom has a
qualifications of key personnel, definition of reasonable chance of success, thereby ensurl~g
scope of work, industrial relations, project a good submission on their part).
control and Contractor remuneration.
INTRODUCTION The most appropriate method of selecting
- ----- a Contractor, assuming that bids/propose;} s
At any time a large organisation has a have been submitted by a number of
number of possible projects under organisations, is one based upon a ranking and
c~nsideration, all of which are competing for rating evaluation (i.e. a matrix-type
the same limited investment capital. The evaluation). For the selection to be
contenders for sel~ction will include both new objective it is desirable that the ranking 2nd
projects and additions to eXisting operations, rating be established prior to invitations to
each of which will have their own peculiar set bid being issued, so that the proposals are
of problems. submitted in a form that assists the
It is essential that once the viability evaluation. A typical evaluation is shown in
of a project has been established, and it has Table I in which a number of key criteria are
been given the go-ahead by Management, that it identified.
be executed in a timely manner within budget.
Very few mining companies are of sufficient Contractor Management Sy~tem
size to undertake the design, engineering,
procurement and construction management of a A large project typically involves the
large project (>$50 million) in-house. award of over fifty major sub-contractors (>$1
Consequently a Principal Contractor (or million) and the placing of several hundred
Engineer/ Construction Manager, referred to as purchase orders, any of which could he
the Contractor) is usually appointed to fulfil critical to the viability of the project. The
this role under the direction of the owner or effective management of the scheduling,
his nominee. (In the case of a joint venture preparation, evaluation of proposals, awards,
this may be the management company. Hereafter supply and completion of these purchase orders
the owner/developer/manager will be referred and subcontracts is essential to the success
to as the Client). The success of the project of the project.
is dependent upon the sUbsequent
direction/management of his activities by the Evaluation of proposals from a Contractor
Client. should include an in-depth review of the
proposed management systems. This should take
lSenior Project Engineer the form of an explanation by the Contractor
Shell Co of Aust Ltd, Bunhury W.A. 6230
The Aus.I.M.M. Sydney Branch, Project Development Symposium, November 1983

239
240 D.J. KINGSNORTH

TABLE I - EVALUATION OF CONTRACTORS FOR A PROJECT

Max.
Criteria Key Questions/Aspects Rating *Ranking Points
Q~ality of Management Cost Contro 1. 25 100
Systems. Construction Management.
Scheduling.
Procurement.
Engineering Capabilities.
Inspection & Expediting.
Is the control system computerised?
Qualification of Key Industrial Experience. 20 80
Personne 1. Local/Australian Experience.
Have they worked as a team before?
Availability.
Corporate What is past record? 20 80
Qua 1if icat ions. Strengths and Weaknesses of Organisation.
Other Commitments.
Image with Local Sub-contractors.
Corporate Back-up (e.g. specialists
avai lable).
Industrial Relations. Past Record. 20 80
What is the philosophy to be adopted for
thi s project?
Reimbursable Costs. Basis. 16 64
Overheads, Burden, etc.
Local Office Costs.
Site Costs.
Method of Charging Consultants.
Calculation of Fee.
Project Structure, How does it 'fit' with Client 15 60
Type of Organisation. Accountability/Authority of Individuals.
Is it a Joint Venture?
Location of Design Office.
Project Procedures.
Qual ity Control. Quality Control Procedures. 12 48
Overseas Arrangements.
Proposed Project Is it realistic? 10 40
Schedule. What is the basis?
Expediting Requirements.
Realism shown in Number of Manhours, Drawings, etc. 8 32
Proposa 1 • requi red.
Are the assumptions of the information to
be supplied by the Client reasonable?
Access to Records. Consider Drawings, Bids, etc. 6 24
Calculations to be handed over on
Completion of Project.
Filing/Distribution System.
Contractor Liability. (Note: In the case of turn-key proj ect , 4 16
as opposed to cost plus, this
would be accorded a higher
ranking) .
TOTAL 624
*Ranking is on a scale of 1 to 4
4 = excellent
3 good
2 acceptable
1 poor
o unacceptable.
The Aus.I.M.M. Sydney Branch, Project Development Symposium, November 1983
 D.J. KINGSNORTH

of a typical ~onthly Report that he would case of key specialists (who's input will be
submi t and how thi s document would be used to required throughout the project) , i L is
control the project. Deviations from the 8dvisable to seek confirmation that the
budget/plan and the corrective actions taken nominated individuals will be total~y
should be highlighted without resorting to available to the project during the design and
excessive detail. The presentation on the construction. The worst situation is where a
m2nagernent systems should be made by the specialist has a "part-time" role from afar on
potential Contractors' nominated project team several projects.
to demonstr8te that it is workable and well
und er stood.

A signi(icant amount of the recording The Contractor's corpor8te organisation

associated with the execution of a project is should have 'sufficient depth of experience and
routine. It forms the basis for progress expertise to provide the necessary back-up
payments and the revision (f schedules. To should the unexpected occur, e.g.
assist in the efficient recording of these exceptionally poor soil conditions, a lack of'
details and to enable the information to be skilled people locally, or unforeseen design
available immediately, the system should be problems. To resolve such problems will
computerised. The Client should not have to probably only require the services of
fund the development of a system for his specialists for a limited time at short
project, as it should be included in the notice, but they have to be av&ilable if t~e
overhead costs. (Alder, 1983). project is not to be delayed with all the
attendant cost implications.
Qualification of Ke~L~_~~nnel
An established "track record" in the
In many cases the final selection will be construction of a given type of plant (e.g.
based upon the best "team" that is offered by petroleum refinery, long, distance pipeline, or
t~e Contractor to undertake the engineering, copper smelter) will assist in the repid
procurement and construction management. The preparation of specifications and drawings.
senior personnel in the project management In its better form it will entall Lhe
team should have some experience in the Contractor to simply pull tried and tested
relevant industry. The team that is offered designs from a drawer, with reV1Slons for
must be balanced with no undue influence of recent technological advances' where
engineering, procurement or on-site appropriate. "Educating" a Contractor can
construction management such that prove a costly and frustrating exercise.
decision-m?king i$ biased or distorted. Those Relevant corporate experience on the part of
personnel with process responsibilities should the Contractor will ensure realism in his
have some operating experience in addition to estimating and scheduling.
design/engineering expertise. In the case of
an international consultant, Australian The Contractor must be committed to
experience by a majority of senior personnel 'your'interests in the project. If he is
is considered highly desirable. A working undertaking a very large number of projects
knowledge of Australian industrial relations, then the assignment of his all too few 'top
relevant Standards and the local statutory people' may be rationed. Conversely, if it is
regulations will assist in the expeditious the only project the organisation is managing
completion of the project. then there is a strong temptation to justify
that an excessive number of people are
Proposals submitted by a joint venture of assigned to the venture.
contractors or of consultants have to be
considered carefully. Whereas collectively Consider the reputation of the
they may have the experts in a number of Contractor. He should have a reputation as
fields, pften they have no proven reGord as a being fair and responsible with prospective
team. When the demands of a particular sub-contractors. A Contractor with excessive
project are best met by the appointment of a and unnecessary contractual procedures can
joint venture, it is preferable that one of cause sub-contractors to add 10-15% to their
the joint venturers has an overall quotations for the associated delays.
responsibility to simplify the development of
procedures. In summary, the strengths and weaknesses
of the Contractor should not preclude a good
A significant number of large projects working relationship with the Client
are managed by international organisations who organisation.
can draw upon a workforce that is scattered
throughout the world. It is imperative that Industrial Relations Managemen~
the people who are selected to form the
project team can work well together. In the The Client must develop an overall

The Aus,I.M.M. Sydney Branch, Project Development Symposium, November 1983

2~2 D.J. KINGS NORTH

strategy for the management of industrial resisted while the details of the contract
relations on site prior to the appointment of with the Contractor are put in place and
a Contractor. relationships between key personnel are
developed such that the total project team of
The Contractor's proposal should include Client and Contractor personnel have a clear
2. detailed plan of how the industrial and common understanding of the project and
relations will be managed on site in how it is to be implemented. The key steps in
,-ccordance with the Client's strategy. Only this early formative stage are discussed
by adopting a clearly defined plan from tt,e below:
outset can u Client retain an 'arms length'
r~lationship with the Contractor on industrial Definition of Scope of Work
relations, which is essential if there is to
be no "flow-on" of construction conditions During the bid and evaluation stage the
(such as living <:.W2JY from home allowance), to amount of information given to prospective
t~e operational phase. contractors is restricted. Assumptions have
to be made by the Contractor with respect to
The Contractor's past record in tl:e the amount of information he will receive upon
;n~,nagement of similar projects, and this award. The first step upon commencement is a
record's comparison with national trcnds and joint review of the information to be supplied
averages should be considered. by the Cli,ent. It will include such documents
as the project parameters, feasibility
The experience and reputation of the studies, environmental impact statements, soil
Contractor's proposed industrial relations data, flowsheets, design criteria, etc.
officers with the local union officials are of
prime importance ill the evaluation of this As a result of this study it may prove
3spect of lhe proposal. necessary to revise the schedule to allow some
~reliminary studies to be completed
Contractor Remuneration prior to full mobilization of the project
------------------------ team. An evaluation of several key
The cost of providing the engineering, alternatives, such as the transportation of
procurement and construction CIlunagement the raw material, mc'y be required before the
services will typically be in the range of 8 scope can be defined in sufficient depth for
to 12~ of the total project cost. In many detailed design engineering to begin. Such
cases it will be the largest contract of the studies would be undertaken by small teams of
project. The calculation of the cost of these specialists, often seconded from the
services must be defined unequivocally, and Contractor's corporate office. Premature
agreed prior to award. mobilization of the design team can lead to
"wheel spinning", and a feeling by engineering
Evaluation of the proposals received personnel that the project lacks direction
should be completed on an equivalent basis in with the attendant losses of motivation and
the first instance as agreements with a momentum.
Contractor usually take the form of a 'cost
plus' contract. The cost should be calculated The objective of these early discussions
on the estimated number of direct man-hours is to develop a sufficiently detailed scope of
required to complete the project. This is work with associated flow-sheets and basic
necessary to ensure that the Contractor who design criteria for detailed engineering to
has the lowest estimate of the cost of the commence. On a large project, such
project in terms of total man-hours expended information may be released in 'packages' as
(broken down into the various disciplines), alternatives for other areas are evaluated in
does not receive any undue advantage in the parallel.
analysis. It is recognised that this may have
to be adjusted to compensate for any Items requlrlng a long lead time for
particular expertise one organisation may procurement and construction such as power
possess, [e.g. computer aided drafting (CAD) generating facilites, large rotating machinery
is more efficient than conventional drafting, and high technology equipment that has to be
but attracts a higher unit rate.] imported should be . finalised first.
Preliminary material take-offs will also be
THE MANAGEMENT, OF A CONTRACTOR required so that orders may be placed for
---------------------- "bulk" steel.
Once toe selection has been made there is
a great possibility for the Contractor to be Proj ec t Control
instructed to mobilise instantly, which sets
in place a significant migration of personnel As part of the early feasibility studies
from around the world to the nominated a budget capital cost will have Deen prepared
offices/site1 This temptation should be upon which the viability of the project will

The Aus.I.M.M. Sydney Branch, Project Development Symposium, November 1983

 D.J. KINGSNORTH 24-3

have been proven, (with a probable accuracy of internally well understood and effective
.::20~,) • system is a prime reason for selecting the
given organisation its basic form should not
The proposed key project control be changed by the Client. The Contractor has
documents should be reviewed and the basic an obligation to "educate" the Client in the
format of the monthly/periodical report use and interpretation of his systems. The
established. It is recommended that a Client should review the sytem in detail with
'Uniform Estimating Guide" be prepared jointly the Contractor, and then clearly define the
by the Client and Contractor. This will information that he wishes to receive on a
ensure that the bases for estimates/budgets regular basis. It is not necessary for a
prepared by the Contractor are similar to Client to review every document produced by a
those prepared by the Client organisation, Contractor, provided he has access to all
thereby obviating the need for any translation documentation when necessary.
of the figures.
On a large project both Client and
Once the project scope has been finalised Contractor organisations will nominate a
the Contractor should be instructed to prepare project manager through whom all official
a preliminary estimate. On a typical project contact and decision making will be made.
of $500 million requiring a 3 year Whilst such an arrangement may be ideal from
construction period this could take 6-9 months both theoretical and legal viewpoints,
as preliminary quotations on the major practically, it is inefficient and the cause
equipment will be required for its of many delays. It is better to establish a
preparation. If the selected Contractor has a matrix-type of relationship with
good bank of data from a large number of Client/Contractor contact at several levels
similar projects this time could be each of which has an attendant authority
significantly reduced. An accuracy of -10;' to level.
+ 157- is typical for such an estimate. Upon
completion of this document, which breaks down In establishing the project procedures
the costs by major facility and character of optimum use should be made of current
,work, it will act as a control in the communication tools e.g. computer to
management of costs. computer links which assist and speed-up
communications between the different
A definitive estimate with a ~robable disciplines.
accuracy of .::7.5% will be prepared when
engineering is 60-70% complete. Submission of One aspect of the project procedures that
these documents to the Client's senior is often glossed over is the Document
management enables them to monitor the project Distribution Schedule. It is worth spending
continually. some time evaluating the real need for the
distribution of key documents as a means of
In parallel to the above activities a developing an efficient organisation. Where
detailed project schedule, utilizing possible, use should be made of summaries and
computerized CPM techniques, should be variance reports. Every piece of paper that
prepared. The results of the analysis will crosses the supervisor/manager's, desk should
al so have an impact upon costs and provide him with information that will assist
consequently there should be regular meetings him in his function. Information distributed
between both Client and Contractor's costing on a "nice to kno\Ol" basis is \oIorthless and
and scheduling personnel at which key time-consuming. For such information, a
decisions are documented for future reference. reading file should be established, which
gives it a lower priority. A matrix-type
For the project to be completed on time organisation is consistent with this policy.
within bUdget it is essential that the Client (Estes and Ruskin, 1980).
fulfils his responsibility to meet the
Contractor's performance demands. The
appointment of a Contractor does not relieve a
Client of all decision making. Tough and The most important factor contributing to
unpalatable decisions often have to be made budget over runs and project delays are
rapidly if a tight schedule is to be continuing design changes. Engineers often
maintained. fail to recognise the law of diminishing
returns, in striving to achieve the perfect
Project Procedures design. At some stage the design has to be
"frozen", subsequently, the only justification
The large contracting organisations have for revision will be that the proposed design
well developed project procedure and control is either unsiJfe or unworkable. Ideally, a
systems with which their personnel are detailed feasibility study would enable the
famil iar. As the existence of such an design to be frozen from the start, or failing

The Aus.I.M.M. Sydney Branch, Project Development Symposium, November 1983

244 D.J. r<INGSNORTH

that, when the major alternatives have been State or Federal Union officials) when
evaluated as detailed above. qualified and knowledgeable support is
reqUired. In drawing this analogy, it is not
If the design is to be frozen, it must be an attempt to trivialise this aspect of
accepted that some plant modifications will be project management, but rather to emphasise
required during the commissioning stage tc it.
bring the project up to design capacity. This
expenditure would be included in the Inspection and Expeditin~
contingency allowance.
Often little importance is given to
Industrial Relations inspection and expediting by the Client, and
------------ once the project is underway, assignments are
As soon as the Contractor has been left to the discretion of the Contractor. As
appointed, that is prior to any mobilisation both inspection and expediting are a form of
on site, the details of the industrial insurance, and the cost of assignments are
relations strategy should be developed. fully reimbursable the unsupervised .Contractor
!·iatters such as the implementation of a site will tend to be cautious. In some cases
award versus use of existing federal/state excessive expediting/inspection can sour
awards, the appointment of industrial officers future relations between the supplier and
o~ site and their role, and site allowances Client. Therefore, the Client should assign
should all be discussed. the responsibilities of the co-ordination and
approval of expediting and inspection to
To prevent the possibility and flow-on of specific functions in his organisation to
undesirable practices to the operational ensure consistency in their application.
phase, it is preferable for the Client to Obviously, the two responsibilities should not
retain an arms-length relationship with the be assigned to the same office, due to
Contractor on· industrial relations matters. potential conflict of interest.
This may be facilitated by the appointment of
an employer organisation to co-ordinate The key inspection and test reports must
industrial relations management on site. be retained as the basis for the maintenance
information system during operation. The
Good industrial relations are fundamental transfer of this information should be
to the timely completion of a project, a lost considered early in the project.
time figure of 15-20% can delay a project with
a 3 year schedule by six months or more. Not A Client representative should always be
only are there the direct time losses but once present at discussions/negotiations with
a site has gained a reputation as statutory and licensing authorities to
"industrially active", productivity will drop maintain continuity through to the operational
through lack of continuity and the better phase.
tradesmen will often leave for other projects
where their income can be guaranteed. Office Location

The industrial relations representative The majority of resource developments in

on site may be .likened to a doctor on a
safari. If there is no "sickness" then the
sceptics will re-state their belief that such
people are not required, while ignoring any
beneficial effect that preventative measures
have had. However, if there is a dispute he
has to pull the right panacea from his bag
instantly. In selecting an industrial
relations officer do not consider the witch
doctor who manages by fear, or the brain
surgeon who will spread confusion through his
unnecessarily technical language. The
incumbent should be likened to a G.? who can
communicate at the grass roots level, and will
listen with patience to the many trivial
complaints before offering sound, acceptable
advice. In times of crisis he sI ~uld be able
to seek the advice and assistance of a - the Contractor has ready access to
specialist in the corporate organisation,
(e.g. in the event that an appearance before
an Industrial Commissioner is necessary or
there is a need for direct negotiation with
The Aus.I.M.M. Sydney Branch, Project Development Symposium, November 1983
Australia are in remote locations, while the
design/procurement office has to be
established in a covenient major city. The
choice of the office location should take into
consideration such factors as communications
with the site, the Client's parent
organisation, statutory authorities and the
vendors and subcontractors.
It is considered preferable that the
Client be allocated space in the same location
as the Contractor for the following reasons
- the Client personnel can concentrate
their effort on the successful
completion of the project,
the Client for decisions, and
it assists in the rapid establishment
of good rapport and communication
 2 tf5

between Client and Contractor.

The timing of the move of key personnel The author acknowledges the inform~l
to site is a matter worthy of some contributions of his colleagues in Shell and
consideration. This move should be made as the engineering/construction industry to this
soon as design is complete. to leave a small paper.
representation in the original
design/procurement office.. Once design is The author wishes to thank The Shell
complete the major problems/decisions relate Company of Australia Limited for permission' to
to activities on site and it is therefore present this paper. However, he wishes to
logical for key personnel to De located on
r'ecGrd that he is responsible for the vield
site.
expressed herein.

REFER Et!..CES
A project can be completed on time and
within budget if it is factually conceived, J. ALDER (1983) "Use of computerised
realistically and knowledgeably budgeted and management systems for the Blair Athol Coal
scheduled. and decisively designed and Hine Project" - Ausn1N Symposium on Computer s
constructed. This paper has identified the in Mining. Brisbane. May 1983.
key attributes of a successful project
management relationship between Client and W.E. ESTES and A.H. RUSKIN "The
Contractor. Organisation: Its Effect on Project
Hanagers". American Society of Civil Engineers
Cor:vention and Exposition. Florida USA,
October 1980.

The Aus.l.M.M. Sydney Branch, Project Development Symposium, November 1983